Global tensions will spur value chains rethink

Outlook

Environmental concerns, tech advances, US-China tensions and COVID-19 disruptions and protectionism are inspiring firms to reassess their global value chains (GVCs).

Reshoring shortens GVCs and raises geographic concentration; higher-tech GVC-intensive firms are likely to consider this. Regionalisation will shorten GVC length but not lessen geographic fragmentation. Raw materials, and sectors processing goods regionally (food and chemicals), will benefit.

Tech advances including automation and 3D printing will promote multiplication, shortening GVCs and concentrating the value added. Textiles and higher-value services will see more diversification, especially entrants, although services trade is less regulated than manufacturing.

Shorter GVCs may imply less FDI. If competition rises among countries, political stability, institutions, infrastructure and skills will increase in importance.

Impacts

• Reordering GVCs is not trivial for firms, nor is it readily susceptible to policy prescription.
• Tech advances will speed up the transformation of manufacturing and services, benefiting firms able to respond fast to changes in demand.
• Boosting redundancy to increase resilience will be cost-prohibitive for many firms; supply vulnerability will persist.
• Entry barriers to trading services will fall for developing nations, but regulatory divergence will persist, or could widen.